Crisis Management: from
BP to NFL to ISIS to GM
John M. Holcomb
Ethics Boot Camp
October 10, 2014
Sentencing Guidelines
Mitigating Factors





Lack of Involvement in the Offense by Any
Policy-Influencing Personnel
Taking Appropriate Steps to Prevent the
Commission of Crimes
Taking Appropriate Steps to Detect Crimes
that Have Been Committed
Self-Reporting of Offenses to Authorities
Cooperating Fully with the Government’s
Investigation
Mitigating Factors Cont.




Accepting Responsibility
Taking Swift, Voluntary Remedial Action
Disciplining Individuals Responsible for the
Offense
Responding to the Occurrence of an Offense
by Taking Steps to Prevent Further Offenses
Impact of Sentencing Guidelines





Sentencing and Culpability
Charging Guidelines of Government Agencies
Federal and State Tradeoffs
Legal and Public Relations Strategies
Converging Legal and Crisis Management
Trends
Steps in Crisis Management
Model








Investigating the Facts
Portraying the Problem
Assessing Blame or Responsibility
Responding to Critics
Adopting New Policies
Implementing New Practices/Procedures
Political Tactics
Cost in Money and Credibility
Crisis Management and Responses to
Public Controversy
Firm
Finding
Facts
Problem
Portrayal
Assess
Blame
Response
to Critics
Policy
Changes
New
Procedures
Political
Tactics
Costs in $
Credibility
J& J
Tylenol
Internal
Tests
Serious
Problem
Blame
Others
Collaborate
Unilateral
Change
None
Ads and
Self-reg
Low/Low
Abbot
Labs
Infant
Formula
Internal
and
External
Tests
Serious
Problem
Accept
Limited
Blame
Collaborate
Unilateral
Change
Code and
Decision
Structure
Negotiate
Selfregulate
Low/Low
Nestle
Infant
Formula
Inactive
No
Problem
Blame
Others
Confront,
then
Collaborate
Industrywide
Change
Code and
Decision
Structure
Later
Negotiate
Med/Med
Hooker
Chemical
Love
Canal
Inactive
No
Problem
Blame
Others
Selfdefense
No
Change
Decision
Structure
Ads and
Litigation
High/High
Firestone
500
Recall
Suppress
No
Problem
Blame
Others
Confront
No
Change
Product
Testing
Lobbying
High/High
A.H.
Robbins
IUD
Suppress
No
Problem
No Blame
Confront
No
Change
None
Litigation
High/High
Crisis Management and Responses to
Public Controversy
Firm
Finding
Facts
Problem
Portrayal
Assess
Blame
Response
to Critics
Policy
Changes
New
Procedures
Political
Tactics
Costs in $
Credibility
Exxon
Valdez
Delay
Not
Serious
Blame
Captain
Selfdefense
No
change
None
Litigation
Med/High
Union
Carbide
in Bhopal
Delay
Serious
Problem
Blamed
Indian
Managers
sabotage
Selfdefense; try
the case in
India
Slow
change
Slow
change
Litigation
and Avoid
Med/High
BP
Diligent
but spoke
too soon
UnderEstimated
Extent
Shared
Blame
with other
firms
Selfdefense
and
Collaborate
Clean up
and
Safety
Measures
Change
Leaders,
Board
Internal
Report
Testify
Pay
Victims
Ads on
cleanup
High/High
News
Corp
Inactive
No
gemeric
Problem
Blame
rogue
reporters
police
Selfdefense
Investigat
e but
weak
board
Fired
editors
Testify
and
Litigate
Med/Med
Tyco
Suppress
Minor
problem
CEO
blamed
accounta
nts
Selfdefense
Massive
Change
in leaders
board
mgmt
Cultural
change
values
governan
ce
Strategic
changes
High for
old mgmt
Low for
new
mgmt
Goldman
Sachs
Inactive
No
Problem
Benefits
for SHs
Selfdefense
Changed
Bonuses
None
Testifu
Settle
Med/Med
Crisis Management and Responses to
Public Controversy
Firm
Finding
Facts
Problem
Portrayal
Assess
Blame
Response
to Critics
NFL
Inactive
Isolated
Players Mea
Culpa
Policy
Changes
New
Procedures
6-game
rule
Political
Tactics
Costs in $
Credibility
Defend
NFL
?
?
ISIS
CIA
Active
W.H.
Not
Jayvee
Terrorists
and
Advisers
Al
Quaeda
Is Gone;
Fox
News
Return
to Iraq;
No
Derad
Progra
m
Air
Support
Coalition
Longterm
Campaig
n
GM
Inactive
and
Suppres
s
Limited
Apology
Limited
Agreement
Internal
Investigation;
Safety
Culture;
Aid
Victims
Fire
Culprits;
Global
Safety
Director;
Board
Monitor
Litigate
on
property;
Defend
New GM;
Victim
Compensation
Fund
High/Hi
gh
Lessons from Crisis Management
Cases

Where you start is where you finish



Mid-course corrections are rare indeed




Conscientious initial response predicts later positive steps
and outcomes
Resistant initial response predicts later negative steps and
outcomes
Require long lapse of time
Require major changes in management
Nestle is the only aberrant mixed case
Learning behavior is unusual


From one’s own mistakes
From mistakes of others
Pre-Crisis Stage




John Browne era – eliminated rivals
Beyond Petroleum Brand; Caspian Sea CSR
Growth over quality control
Hayward era to emphasize safety, but
questionable culture




Texas City refinery explosion
Pipeline corrosion
Thunder Horse platform problems
Safety problems at Magnus platform, North Sea
Ascertaining the Facts

Underestimated flow rate




Government also or chiefly responsible
Effect on aggressiveness of response?
Internal investigation launched by BP
Multiple efforts to probe the causes
Portraying the Problem





Acknowledged “worst ever” oil disaster
“Just want my life back” comment showed
hubris and inability to empathize with those
who were suffering
Less impact on coast and wildlife than Exxon
Valdez, especially on the fish stock
Major impact areas: oyster beds, marshlands,
coral reefs, seabed and possibly plankton
Oil has dissipated – 75%; was Hayward right?
Allocating Responsibility




Took responsibility for cleanup of Gulf and “all
legitimate claims”; not liable for gross negligence
Internal investigation set up legal case but does not
address legal issues; no mea culpa but PR document
 Halliburton responsible for cement problems, not
acting on warning about gas flow problems
 Transocean and rig maintenance problems
Discusses eight factors and BP takes responsibility
for half of one; reaction after bottom kill indicated
no well design problem; two executives in trouble
Causation is still murky and yet to be determined
Investigative Reports and
Allocating Responsibility




Presidential 0il Spill Commission Report: criticized all
three companies, claiming shared responsibility, with special
focus on Halliburton for unstable cement mixture; BP
accepted report, while Transocean criticized it and awarded
bonuses for “best year in safety performance in company’s
history”
Coast Guard Report: highly critical of Transocean for
safety management system failure and poor safety culture
National Academy of Engineering: failures by all parties,
focus on lack of discipline and training, compared to nuclear
and chemical industries
Did BP cut corners and sacrifice safety? Markey says
“yes,” while presidential commission found no evidence
Transocean Internal Investigation

Put primary responsibility on BP




Faulty well design
Failed to check cement
Chose process to close well that created
unnecessary risk, unapproved by Interior
Department
BP Response: Advocacy document and
cherry-picked facts to support its litigation
strategy
Responding to Critics







More collaborative than confrontational
Three BP and two Transocean officials refused to testify
Pushed by Congress and tension with Administration
 Nationalistic impulses
 BP rarely if ever pushed back
Hayward was inept, unknowledgeable, and weary before
Congress; understood the anger; blamed media and rivals for
hysteria; board fired him
No battle with NGOs, despite tepid boycott
No engagement with investor groups and their proposals but
no avoidance of their complaints
US media harshly critical of BP; British media of Obama
Responding to Critics






Did not join refiners in opposing climate change law in CA
by supporting Prop 23
Hypocrisy in posing as green company invited more criticism
and scrutiny
External programs in CSR (Pipeline to Caspian Sea)
conflicted with internal problems, so overall CR profile is
weak
Debate over value of disclosure and apology
Criticism from Gulf state politicians
Potential conflict between legal and PR advice mitigated by
changes in sentencing and charging guidelines
Adopting New Policies









Selling $30 million in assets
Forging closer ties with Russia; Fiasco over Rosneft deal and
conflict between Russian government and oligarchs
More emphasis on deepwater drilling, less on refining
Moving more into emerging markets
Remediation and cleanup efforts praised
Voluntary aid to Gulf states for tourism; relocation of sea
turtles
$500 million scientific research fund facing state politics
Committed to changing culture; “heard it before”
Danger of Spanish company drilling off of Cuba may benefit
American companies – extending knowhow and equipment
Instituting New Procedures








Ousted head of exploration and production
Established global safety division
Centralizing control under Dudley
Review of employee assessments and rewards
Review of supervision of outside contractors
Splitting exploration and production division into 3
units: exploration, development, production
Shut down operations in Alaska and North Sea
Scrutinizing board committees on
safety/environment and audit – membership and
Political Tactics




Restoration payments contingent on continuing ability to drill
in the Gulf – political bargaining
Tripled amount spent on advertising – criticized but
insignificant amount compares to $9 billion paid out thus far;
best ads have been of employees cleaning up the Gulf area
Use of Brunswick crisis communications firm; retained
political consultants on both sides of the aisle; increased PAC
donations
Reilly lauded BP for defining the problem as systemic
industry failure, while Transocean sees it as a BP problem
Litigation and Penalties







$20 billion fund for property and human damages
Possible $18 billion fine, if there is gross negligence ($4,300
per barrel vs. $1,000)
Settlements with contractor Weatherford and partner Moex
Offshore; first wave and indicates lack of gross negligence
300 civil lawsuits pending – wrongful death and economic
damages
Center for Biological Diversity has lawsuit of $19 billion for
damages under Clean Water Act
Civil lawsuit by DOJ under Clean Water Act; possible
criminal charges for manslaughter
BP has sued Cameron and Transocean for $40 billion
Costs in Money and Credibility








Possible ultimate liabilities of $80-100 billion
Litany of future investigations
Provoked costly drilling moratorium
Faces tougher regulations in the future
Reputation is stained
Branded stations lost sales and customers
Stock cut in half, rebounded now down 1/3
Public credibility is low but has recently
doubled
Industry Risk Management






Newer risks from deep-water drilling
Industry’s Chernobyl; Gulf is Silicon Valley
New industry initiative to build equipment to contain
and cap well blowouts; National Center for Offshore
Safety to improve self-regulation
Reilly: “…the spill is a game changer. The industry
has never been more alert to safety.”
Leaders are pushing laggards
Largest companies will benefit as small companies
lose to increased costs
Minerals Management Service







Collaborator or partner with industry; adopted industry
standards; part of re-inventing government
Capture theory at work
Built-in conflict of interest – promoter and regulator of
drilling
Encouragement of more drilling from Watt through Babbitt
(like Levitt) and Norton.
Categorical exclusions from environmental reviews if “no
significant effect on human environment” (1970 NEPA)
Royalty-in-kind program and Lakewood sex & drugs scandal
Similar problems at Mine Safety Agency and Nuclear
Regulatory Commission
Reforms in MMS





Bureau of Ocean Energy Management,
Regulation, and Enforcement
Split functions in agency
New conflict of interest controls
Appointed Michael Bromwich as director
Same staff but hiring new people as well